Features
Finding a healthy medium
Predicting the costs of health care is a challenge no matter who you talk to.
By Deborah Garofalo
Smart Business Cleveland | February 2002
Alex Berg says his job is a little easier these days.
"You don't need to try and convince people there's a problem," he explains.
Berg is a health and welfare practice leader with Towers Perrin, a global management and human resource consulting firm with 9,000 employees in 23 countries. He says Cleveland is fortunate to have one of the most successful small employers' purchasing groups in the country, the Council of Smaller Enterprises (COSE).
Statistics indicate coalition purchasing is growing, and smaller employers are five times more likely to participate in a coalition-based purchasing program than they were just a few years ago.
The reason? Double-digit increases in the cost of health care, with no end in sight. Health insurance premium increases averaged between 11 and 14 percent for 2001, and experts predict another increase next year of between 12 and 15 percent. That has small and large employers alike concerned.
Cleveland-based accounting firm Cohen & Co. was hit with a 36 percent increase in its cost for insurance coverage. For Cohen, health care benefits are a way to attract and retain employees, and up until this year, it paid 100 percent of its employees' premiums and a portion for family coverage.
So when Cohen decided to pass a small portion of premium costs on to its employees, it was a decision not make lightly. Mary Kay Wagner, manager of HR and administration, says what made the decision more palatable to employees was the amount of time the company spent designing a reasonable plan and hosting seminars to help employees better understand their options.
George Statlander, vice president of underwriting at Medical Mutual, believes the crisis of sky-high insurance premiums will pass with the advent of new innovations.
"I think we're going to go through a cycle (of higher premiums)," he says.
Statlander predicts a migration of doctors from larger health care systems into more entrepreneurial initiatives, creating greater competition in the marketplace. That, he says, will drive premiums back down.
A survey conducted by Towers Perrin indicates the most popular method of reducing costs is a change in prescription drug programs; approximately 65 percent of companies surveyed took this route. Forty-one percent changed plan design and implemented cost-sharing features. Others increased co-pay amounts and co-insurance arrangements.
"Drugs represent anywhere from 20 to 25 percent of total health care costs," says Berg.
A decade ago, prescriptions accounted for 6 to 8 percent of total costs. Because of compounded interest, a rise in overall costs equates to a much higher increase in the portion for medicine.
Also, Berg says coalition purchasing can lower prescription drug costs up to 5 percent.
"And when that's representing 25 percent of your total health care costs ... that can be a fairly significant impact," he says.
Robert Baker, president and CEO of the University Health System Consortium, says drugs costs are not expected to decline in the near future.
The consortium, with headquarters in Chicago, works with approximately 90 university hospitals and physician staffs nationwide. Its mission is to help hospitals manage costs and compete in the marketplace. Contrary to a common belief, Baker says physician reimbursement and hospital reimbursement have remained fairly static over the last decade. However, nursing and other critical health profession labor costs have risen significantly.
Another way to combat rising insurance costs is through plan consolidation. Forty-nine percent of employers now offer five or fewer health plan choices to their employees, an increase from 43 percent in previous years.
One of the more controversial ideas for helping businesses weather booming prices is a defined contribution plan, in which employers provide a specific amount of money monthly to employees for health care. It is up to the employee to invest it, shop for the best value in health plans or bank the money.
Berg says if the company's objective is to avoid fluctuations in insurance costs, a defined contribution plan may be the answer. If a business is looking to recruit and keep employees, it's important to first understand how a benefits program factors into retention, recruiting and employee motivation.
Know your objectives, Berg says, because they will determine whether this is an option for your company.
"If you have a bunch of young, single people, this would work very well," he says.
But long-term employees with families may consider it less of a benefit and more of a restriction.
Joseph LaGuardia, regional vice president of Anthem Blue Cross and Blue Shield, favors shifting more responsibility onto the consumer. He says matching a benefits plan to the specific demographics of each company and promoting a proactive approach is one option. Anthem's new tag line, "Decide to be Healthy," is a sign of that commitment.
"The individual has got to take more control of their health care, their eating habits and the way they live their life," LaGuardia says.
The last few years have been tricky because economic growth and a tight labor market made it difficult for employers to shift health care costs to employees. But that is changing, and business owners are looking for way to rein in costs.
"I really do think the patient needs to make some choices," says Statlander. "That means if they're going to be responsible, they need to be financially responsible as well as personally responsible for the choices they make."
Cost-sharing options, he says, are important incentives.
Joe Cerino, president of Bedford-based Har Adhesives, absorbed a good portion of his company's health care cost increases in the past, but then premiums went up 20 percent each of the last two years.
No matter what the options are, one thing is certain: things are changing and employers must adapt.
"I've got to go shopping now," Cerino says. "I owe that to my employees and to myself." Deborah Garofalo is associate editor of SBN Magazine.
